Custom Search

Tuesday, October 5, 2010

Elliott Wave Update ~ 5 October [Update 7:33PM]

[Update 7:33PM: Interesting comparison between oil and gold.]
ORIGINAL POST
THE NATURE OF BEAR WAVE TWO's
Well here the market has arrived.  I have blogged many times in the past on bear wave two's and how they wish to be bull waves. But to be a bull wave a wave two must overcome the previous wave one's worst spot on the tape.

So in that spirit, the market is having its "Karate Kid" moment.  It has worked very hard to reach this spot. It has worked very hard to challenge the ultimate goal: To conquer and hold Flash Crash Day. If it can do this, it will no longer be a bear wave two, but can go on and be a bull wave and challenge new highs.

But wave two's work very hard to get back toward this spot. A wave two will have reached a near exhaustion point just when the big game day is coming.

MASS SELL DECISION POINTS
I use the Wilshire 5000 for my analysis here because its the "total" market. Its encompasses the entire energies of the marketplace.  Why? Because mass sell decision points, otherwise known as big bear down days that wreck the tape and leave horrible internals are a total market participation event. No one is left out on these days. They leave scars.

P[2]'S BATTLE FOR LEHMAN DAY
In its purest essence, the whole notion of P[2] boiled down that if it could conquer Lehman Day (15 Sep 2008) then it might overcome being a bear wave two and maybe even challenge the 2007 highs.  http://danericselliottwaves.blogspot.com/2010/04/battle-of-lehman-day.html Why Lehman Day? Well this was really the first horrid market internal day in 2008 and a "oh shit" moment. A point of recognition that things were spiraling out of control.  If the market could just re-take Lehman Day, it can spring forth high once again.

In Elliott Wave theory terms, this is a psychological event. The market remembers these points. As the market approaches these violent social mood pressure points, it remembers. This acute point is likely to trigger the same reactions as before - in this case mass bear selling - if the wave is a wave two.

If it can overcome this, hold as support, then it will prove itself to be not a wave two. And it can go on and challenge the previous market peak where we started counting the wave one.

IF ITS A WAVE TWO, THE MARKET ALLOWS ONE CLOSE OVER THE PANIC POINT
You can see this principle in action on a few time scales:

1. After Lehman Day, Minute [ii] of Minor 3 of P[1] had one close over Lehman day.
2. April 25th, 2010. P[2] had one close over Lehman Day.
3. After the Flash Crash candle of May 6th, we had one close (a proposed Minute wave two?) over that candle back in May.

IF THIS IS MINOR WAVE 2, WHAT IS THE PRESSURE POINT?
We had actually two mass market sell decision days from the April peaks. May 6th was the first. This was known as Flash Crash day and left very ugly decliners versus advancers.  The second was May 20th. The second hard bear day managed to keep this market "in check" for quite some time. But eventually selling exhausted and the market has overcome that big bear day to eventually challenge the Flash Crash day candle.

WAVE TWO'S EXHAUST THEMSELVES SLOGGING BACK TO THE MASS MARKET SELL DECISION POINT
Like a salmon who uses all his energy to swim upstream he only has enough energy left to reproduce and then dies. A wave two must expend all its energies to get back to the ultimate challenge point of the previous wave one down. That is what induces massive failure and that massive failure morphs quickly into a wave three event which is almost always stronger than the previous wave one. If wave one was a sell-off, wave three is a double sell-off. An affirmation of the previous bear mass market sell decision points.


WHAT EVIDENCE IS THERE OF EXHAUSTION?
The SPX has a lot of "stacked" gaps and rather large ones at that. Those are huge trading targets. There are negative divergences on many indicators.  Today was the 12th time since the April market peaks the NYSE up volume was greater than 12:1. Yet during those same days, today was the least amount of advancing stocks yet at 4.27:1. So instead of it being the best 12:1 day, its the least.

LOGICAL PILING ON SHORT POINT
As far as a trade setup it doesn't get much better than this for risk/reward. You have a possible wave two right at the point of expected failure.  You simply pile on short and watch wave 2 turn into wave 3 down, usually quickly.    The "stop" point is not far above.  After all, if the market can re-conquer the flash candle high, which is mere points over head, then you find out its not a wave two and take a small loss. Give some room for one small intra day bump and a possible close over the bear day.

But if it is a wave two, then what comes after wave two is three. That the beauty of EW logic. You claim you cannot trade off it? Well I am explaining it all here.  A wave two price peak is a perfect entry as much as a wave one low is.

SENTIMENT PICTURE
Sentiment has recovered more than enough in equities, gold, silver, bonds - damn near everything is peaking. Dollar is wiped out. Even I despise the dollar now because it reminds me of Ben Bernanke. I'm disgusted as the rest of you. Yet my brain tells me otherwise.

TIME, PRICE, WAVEFORMS, TRENDLINES, SENTIMENT IS ALIGNING FOR THE PERFECT BEAR STORM IN MANY MARKETS
Sure they may squeak a bit higher, but we are at the challenge point. I posted many charts today and the big bear line from the 2007 top is coming into play.  http://2.bp.blogspot.com/_TwUS3GyHKsQ/TKtxcszIMEI/AAAAAAAAHtc/6YbUm0hN22k/s1600/wilshire.png Additionally you have symmetry between [a] and [c] of Minor 2 in both time and price.
MARKET TODAY INCIDENTALLY CLOSED WITHIN LEHMAN DAY BEAR CANDLE
The market knows where its at.
My NYAD count is actually starting to take the shape of a possible 5 waves. I'll give it the benefit for now but  some day this will top for all-time. That is my opinion and I sense we are near. 

I'm looking for that drop to the lower red trendline for a possible wave 4.   The market may peak in price on wave 3 as it has so far peaked in April on wave (3)
Looks like 5 waves. Sometimes clarity only comes at the end of a structure which is usually when the most  heckling is done from. At the maximum point of EW usefulness in trading the markets is when everyone gets down on it the most because every squiggle wasn't accurately pre-mapped. That never changes.

blog comments powered by Disqus